IRS Activates New PTIN System

The IRS deployed a new preparer tax identification number (PTIN) registration system September 28 as a component of its initiative to register and regulate paid tax return preparers.

All paid tax return preparers (including CPAs, attorneys and enrolled agents) must apply for and obtain a PTIN—even if they already have one—before preparing any federal tax returns in 2011.

The regime features a new online PTIN application process at the Tax Professionals page of irs.gov. As an alternative, preparers may submit a paper application by using Form W-12, IRS Paid Preparer Tax Identification Number Application. The IRS estimates it will take four to six weeks to respond back to preparers regarding paper applications.

The IRS established the administrative framework for the new PTIN system in two sets of final regulations (T.D. 9503 and T.D. 9501) amending administrative regulations and those under Sec. 6109 governing furnishing of preparer ID numbers on returns and claims for refunds. On its “Tax Professionals” Web pages, the IRS posted questions and answers about PTINs and other aspects of the initiative. And in a news release (IR-2010-99), the IRS outlined the changes and how they will affect all return preparers, including CPAs.

On September 30, 2010, the Treasury Department and the IRS will publish in the Federal Register final regulations under Sec. 6109 (T.D. 9501) that require tax return preparers who prepare all or substantially all of a tax return or claim for refund to use a PTIN as their identifying number. The regulations will also provide that to be eligible to receive a PTIN, a tax return preparer must be an attorney, CPA, enrolled agent, or the new category of “registered tax return preparer.” T.D. 9503, which also will be published in the Federal Register on September 30, adds Regs. Sec. 300.9, which establishes a $50 user fee to apply for or renew a PTIN.

Testing and Continuing Education

In Tuesday’s news release, the IRS said that as it finalizes guidance for which it issued proposed regulations in August (REG-138637-07), on application of the practice rules of Circular 230 to new classes of return preparers, it will consider excluding from new testing and continuing education requirements, in addition to CPAs, attorneys and enrolled agents, “a discrete category of people who engage in return preparation under the supervision of someone else—for example, some employees who prepare all or substantially all of the return and work in certain professional firms under the supervision of one of the above individuals who signs the return.”

On its website, the IRS said it expects to deploy the testing requirement in mid-2011 and has not yet set a start date for the continuing education requirement.

Foreign Preparers

With the new Form W-12, the IRS also released two forms for preparers lacking a Social Security number: Form 8945, PTIN Supplemental Application For U.S. Citizens Without a Social Security Number Due To Conscientious Religious Objection; and Form 8946, PTIN Supplemental Application For Foreign Persons Without a Social Security Number. In the preamble to T.D. 9501, the IRS said it will issue transitional guidance by the end of this year describing how foreign and other return preparers without Social Security number may obtain PTINs.

Application and Fees

After December 31, to be eligible to prepare tax returns for compensation, all paid return preparers will be required to have a PTIN and furnish it on all returns they prepare. All paid return preparers—including nonsigning preparers who prepare all or substantially all of a tax return—must apply and reapply annually, each time paying the fee. Preparers, including CPAs, attorneys and enrolled agents, must apply whether or not they already have a PTIN. Those who already have a PTIN “generally” will be issued the same number, but if they receive a new one, they must use it going forward.

Applicants must state that they are current on both their individual and business taxes or explain why they are not. They must also state whether they have been convicted of a felony in the past 10 years and, if they have been, provide an explanation.

Applicants must pay a $64.25 fee, which consists of the $50 IRS user fee required by new Regs. Sec. 300.9 and a $14.25 fee charged by the site’s third-party administrator. The fee may be paid by credit card online. Applicants paying by check with a paper Form W-12 are told to expect their PTIN within four to six weeks.

AICPA Position

The PTIN registration process is part of the recommendations contained in IRS Commissioner Doug Shulman’s preparer review report released in January 2010. In addition to requiring return preparers to obtain a PTIN, the overall initiative would also require those preparers who are not CPAs, attorneys or enrolled agents to pass an examination and comply with continuing education requirements.

In its comment letter on the proposed regulations that require the use of a PTIN by all paid preparers (REG-134235-08), the AICPA said:

The AICPA believes the issuance of one unique identifying number to each tax return preparer, coupled with making all preparers subject to the professional ethics standards of Circular 230 and the Code’s civil preparer penalty regime, will prove to be an effective method for addressing [IRS] concerns about taxpayers receiving competent and ethical service from qualified tax professionals.

The letter expressed the AICPA’s “serious concerns with aspects of the proposed regulations; and most notably the nonsigning preparer construct.”

The AICPA’s comments focused on (1) the extension of the PTIN requirement to nonsigning employees of CPA firms; (2) the appropriate title for persons receiving a PTIN; (3) the IRS’ imposition of “reasonable user fees”; and (4) foreign preparers without Social Security numbers.

In addition to addressing the PTIN proposed regulations, the AICPA’s comments also urge the IRS to delay implementation of an examination for return preparers because:

[A] successful implementation of registration and use of PTINs, along with the imposition of Circular 230 on all preparers should be sufficient to address unethical and/or incompetent tax return preparation and provide tremendous gains to tax administration in general; (2) it may cause confusion among taxpayers about the relative qualifications of tax return preparers; and (3) the additional burdens to the tax preparers and pass through of these costs to the taxpaying public should be considered.